UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

  X      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT
         OF 1934

            For the Fiscal Year Ended August 31, 2003

         TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

            For the transition period from ______ to ______

                         COMMISSION FILE NUMBER: 0-18091

                               RSI HOLDINGS, INC.
                 (Name of small business issuer in its charter)

       North Carolina                                     56-1200363
(State or other jurisdiction of                      (I. R. S. Employer
incorporation or organization)                       Identification No.)

28 East Court Street, Post Office Box 6847, Greenville, South Carolina  29606
        (Address of principal executive offices)                      (Zip Code)

Issuer's telephone number (864) 271-7171

Securities registered under Section 12(b) of the Exchange Act:

                                         (Name of each exchange on
         (Title of each class)               which registered)

                 None                              None

Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, par value $.01
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

          Yes [X] No [ ]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         The issuer's  revenues  from  operations  during  fiscal year 2003 were
$5,314,156.

         The aggregate market value of the common equity held by  non-affiliates
as of November 17, 2003 was $181,338.

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date (November 17, 2003).

         Common Stock, par value $.01 per share     7,846,455 shares outstanding


<PAGE>

         Transitional Small Business Disclosure Format: Yes [ ] No [X]



<PAGE>

PART I.

Item 1. Description of Business

         THE COMPANY

         RSI Holdings,  Inc. (the "Company") was  incorporated in North Carolina
in 1978. The Company's  executive  offices are located at 28 East  Court Street,
Greenville, South Carolina, 29601.  Its telephone number is (864) 271-7171.

         From  January  2000 to March  2002,  the  Company  did not  conduct any
business other than seeking acquisition  opportunities and liquidating assets of
its prior  business.  On January 18, 2002, RSI Holdings,  Inc. (the  "Company"),
executed  a letter of  intent  to  acquire  substantially  all of the  assets of
Employment Solutions,  LLC, a South Carolina limited liability company. On March
4, 2002,  the Company  acquired  substantially  all of the assets of  Employment
Solutions,   LLC,  a  South  Carolina  limited   liability   company  through  a
newly-formed,  wholly-owned  subsidiary,  Employment  Solutions,  Inc.,  a South
Carolina corporation  ("Employment  Solutions").  Employment Solutions is in the
business of locating and providing labor to industrial companies.

         SERVICES

         The Company operates through its  wholly-owned  subsidiary,  Employment
Solutions,  and is in the business of locating and providing labor to industrial
companies  from its facility in  Greenwood,  South  Carolina.  The Company makes
arrangements  with its client  companies  to provide the client  companies  with
manual labor. The Company's client companies  request workers according to their
needs and the Company fills the vacancies  from a pool of available  labor.  The
client  companies  pay the Company for the hours worked at a  negotiated  hourly
rate and the Company is responsible  for paying the workers for the hours worked
plus the related payroll taxes,  insurance and other payroll costs.  The workers
work at the  client  company's  job  site  under  the  direction  of the  client
company's personnel.

         CLIENT CUSTOMERS

         The  Company is in the  business  of locating  and  providing  labor to
industrial  companies.  Normally experience or skill in a particular industry is
not required. Revenues from each of the Company's three largest client companies
exceeded  10% of net  revenues  during the fiscal  year ended  August 31,  2003.
Revenues  from these three client  companies  accounted  for over 50% of the net
revenues of the Company.

         BILLING PRACTICES

         The Company collects from its client companies and the workers are paid
each  week for  work  performed  during  the  previous  week.  Typically  at the
beginning of each week the Company  invoices its client  companies for the hours
worked  during the previous week and the client  companies  typically pay during
that same week.

         COMPETITION

         The manual labor sector of the staffing  industry is highly  fragmented
and highly competitive. The Company's competitors include a large number of sole
proprietorships,  as well as regional and national  organizations.  Many of them
are large  corporations with  substantially  greater resources than the Company.
The Company believes that its reputation for  trustworthiness,  overall business
experience,  connections  to the labor market and ability to respond  quickly to
client requests allow it to compete in this sector of the staffing industry.


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<PAGE>

         REGULATIONS

         The Company is required  to comply  with  applicable  state and federal
wage and hour laws.  These laws require payment of employees at minimum wage and
overtime rates.  The Company is also required to comply with laws regulating the
employer/employee  relationship,  such as tax  withholding  or reporting  social
security, antidiscrimination and workers' compensation. In addition, the Company
must comply with all  immigration  laws,  including the  Immigration  Reform and
Control Act.

         EMPLOYEES

         At  August  31,  2003 the  Company  had a total  of four (4) full  time
employees and 245 full time  employees who are joint  employees of the Company's
subsidiary,   Employment  Solutions,   and  Employment  Solution's  professional
employer  organization,  Quality  H. R.  Services,  Inc.  Most of the  Company's
laborers are foreign  nationals;  however,  the Company is an equal  opportunity
employer and does not discriminate on the basis of race,  religion,  color, age,
sex, national origin or handicapping conditions. The Company's primary source of
laborers are (1)  recruiters,  who are not  employees of the Company and who are
paid on  commission,  and (2)  individuals  who  contact  Employment  Solutions'
seeking work.

ENVIRONMENTAL MATTERS

         The Company is subject to federal,  state and local  environmental laws
and regulations, however, due to the nature of the Company's current activities,
such  laws and  regulations  do not have a  direct,  substantial  impact  on the
Company's business operations.

















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<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

         The  Company  leases  approximately  3,000  square  feet of floor space
located at 28 East Court  Street,  Greenville,  South  Carolina  to serve as its
principal executive offices.  The Company believes that the property is adequate
and suitable for executive  office space.  The monthly rental expense is $2,550.
This lease includes office furniture and equipment.  The office space at 28 East
Court Street is leased from CTST, LLC. CTST, LLC is owned by Buck A. Mickel, the
Company's  President,  Chief  Executive  Officer and a director of the  Company,
Charles C. Mickel,  the Company's  Vice President and a director of the Company,
and their adult sister,  Minor Mickel Shaw.  The Mickel  siblings are beneficial
owners of approximately 65% of the outstanding common stock of the Company.  The
Company believes that this lease contains provisions as favorable to the Company
as could be obtained from a third-party landlord.

         Employment   Solutions  leases  a  warehouse  and  office  facility  in
Greenwood, South Carolina containing approximately 3,000 square feet under a one
year lease arrangement that requires rent of $1,200 per month plus an additional
common maintenance fee of $75 per month.

         The Company  carries  such  insurance as it  considers  reasonable  and
necessary to cover its casualty and liability exposures. The Lessors provide the
insurance on the facilities described above.

ITEM 3. LEGAL PROCEEDINGS

         The Company is a party from time to time to routine  litigation  in the
ordinary course of its business, including but not limited to various regulatory
proceedings,  employment  disputes,  workers  compensation  and personal  injury
claims,  contract breach  litigation and the like. Such litigation is incidental
to the  Company's  business  that does not depart  from the normal  kind of such
actions. The Company believes that no such actions, if adversely decided,  would
have a  material  adverse  effect on its  results  of  operations  or  financial
condition taken as a whole.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were  submitted to a vote of securities  holders  during the
fourth quarter of the Company's 2003 fiscal year.
















                                       3
<PAGE>

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The   Company's   Common   Stock  is  thinly   traded  on  the   NASDAQ
over-the-counter  bulletin  board.  The  high  and  low  bid  quotations  of the
Company's  Common  Stock  after  giving  effect to the 3:1  reverse  stock split
effective June 10, 2002 are set forth below for the fiscal  quarters  indicated,
as reported by NASDAQ for such periods.  These quotations  reflect  inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.

                                        2003                       2002
     Fiscal                       High         Low          High           Low

     First Quarter                  .19        .03          .03             .03

     Second Quarter                 .38        .10          .06             .03

     Third Quarter                  .23        .13          .33             .03

     Fourth Quarter                 .13        .08          .41             .06

         As of November 17, 2003, the Company had approximately 538 shareholders
of record.

         The Company  paid no cash  dividends  with  respect to its Common Stock
during fiscal 2003,  2002 and 2001, and does not intend to pay cash dividends in
the foreseeable future.

         During  the fiscal  year ended  August 31,  2003,  the  Company  issued
securities as described below without  registration  under the Securities Act of
1933,  as  amended,  pursuant to the  exemption  from  registration  provided by
Section 4(2) thereof based on the small number of issuees:

          o    On  November  22,  2002,  the Company  issued  options for 10,000
               shares of its Common Stock to a consultant  as  compensation  for
               services.  The  options  expire on  November  22,  2007 unless an
               earlier date of  expiration  occurs  pursuant to the terms of the
               pertinent  option grant letter,  and the exercise  price of these
               options is $0.18 per share.
          o    On December 9, 2002, the Company issued options for 10,000 shares
               and  5,000  shares  of  its  Common  Stock,  respectively  to two
               employees as compensation. The options expire on December 9, 2007
               unless an earlier date of expiration occurs pursuant to the terms
               of the pertinent option grant letters,  and the exercise price of
               these options is $0.10 per share.
          o    On  December  23,  2002,  the Company  issued  options for 10,000
               shares of its Common Stock to a consultant  as  compensation  for
               services.  The  options  expire on  December  23,  2007 unless an
               earlier date of  expiration  occurs  pursuant to the terms of the
               pertinent  option grant letter,  and the exercise  price of these
               options is $0.19 per share.
          o    On January 22,  2003,  the Company  issued  25,000  shares of its
               Common Stock to a consultant  upon  exercise of options that were
               issued as  compensation  for  services  and not  approved  by its
               security holders. The exercise price was $6,500.





                                       4
<PAGE>
<TABLE>
<CAPTION>


                                          EQUITY COMPENSATION PLAN INFORMATION

--------------------------------------------- ------------------------- ----------------------- --------------------
               Plan category                  Number of securities to      Weighted average          Number of
                                              be issued upon exercise     exercise price of         securities
                                              of outstanding options,    outstanding options,        remaining
                                                warrants and rights      warrants and rights       available for
                                                                                                  future issuance

--------------------------------------------- ------------------------- ----------------------- --------------------
                                                        (a)                      (b)                      (c)
--------------------------------------------- ------------------------- ----------------------- --------------------
<S>                                                          <C>                        <C>                  <C>
Equity compensation plans approved by                        1,609,439                  $.0993               43,333
security holders
--------------------------------------------- ------------------------- ----------------------- --------------------
Equity compensation plans not approved by                       95,000                  $.1347                    0
security holders
--------------------------------------------- ------------------------- ----------------------- --------------------
Total                                                        1,704,439                  $.1031               43,333
--------------------------------------------- ------------------------- ----------------------- --------------------
</TABLE>

         The equity  compensation plans not approved by security holders consist
of options to  purchase  Common  Stock of the Company and expire five years from
date of issuance.  The options generally give the optionee the right to purchase
a specified  number of shares of Common Stock of the Company at the market value
on the date of the issuance.


























                                       5
<PAGE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.

         This Report on Form 10-KSB contains  forward-looking  statements within
the meaning of Section 27A of the  Securities  Act and 21E of the Exchange  Act.
Forward-looking  statements  are indicated by such terms as "expects",  "plans",
"anticipates",  and words to similar effect. Such forward-looking statements are
subject to known and unknown  risks,  uncertainties  and other  factors that may
cause the actual  results,  performance  or  achievements  of the  Company to be
materially different from future results,  performance or achievements expressed
or implied by such  forward-looking  statements.  Important factors ("Cautionary
Statements") that could cause the actual results, performance or achievements of
the Company to differ  materially from the Company's  expectations are disclosed
in this Report on Form 10-KSB.  All written or oral  forward-looking  statements
attributable  to the Company are  expressly  qualified in their  entirety by the
Cautionary Statements.

         ACQUISITION OF BUSINESS

         On March 4,  2002,  the  Company,  through  Employment  Solutions,  its
newly-formed,  wholly-owned subsidiary, acquired substantially all of the assets
of  Employment  Solutions,  LLC, a South  Carolina  limited  liability  company.
Employment  Solutions  is in the  business of locating  and  providing  labor to
industrial  companies in the United  States.  Prior to the asset  purchase,  the
Company had not conducted any business since January 31, 2000 other than seeking
acquisition opportunities and liquidating the assets of its prior business.

         RESULTS OF OPERATIONS

         During  the year ended  August 31,  2003 the  Company's  revenues  were
$5,314,156  as  compared to  revenues  during the year ended  August 31, 2002 of
$2,265,342.  The Company's  revenues  increased  from fiscal 2002 to fiscal 2003
primarily because the Company did not have revenue-generating  operations in the
year ended August 31, 2002 until March 4, 2002 and therefore  generated  revenue
for only  approximately  half of that fiscal year. The increase in revenues from
2002 to 2003 was also the result,  to a lesser  extent,  of an  increase  during
fiscal 2002 in the average number of workers employed by the Company to a higher
level that then remained relatively constant in 2003.

         Employment Solutions incurred cost of services of $4,307,446 during the
year ended  August 31,  2003 as  compared  to  $1,813,228  during the year ended
August 31,  2002.  These costs  include  wages paid  directly to the  employees,
payroll  taxes,  workers   compensation   insurance  and  other  costs  directly
associated with employment of the workers.  The cost of services for fiscal 2003
were   higher  than  for  fiscal   2002   primarily   because  the  Company  had
revenue-generating  operations for only approximately half of fiscal 2002 and to
a lesser  extent  because of the higher  average  number of workers  employed in
fiscal 2003 as discussed above.

         General and administrative expenses were $873,441 during the year ended
August 31, 2003 as compared to $538,595  during the year ended  August 31, 2002.
The expenses,  exclusive of Employment  Solutions,  during the year ended August
31, 2003 include salaries and related costs of $347,333; legal, accounting,  and
shareholder   related   expenses   of   $62,263;   rent  of  $35,600  and  other
administrative  expenses of $69,468.  The expenses  during the year ended August
31, 2003 also include selling and administrative expenses incurred by Employment
Solutions of $229,898 and the amortization of customer related intangible assets
of $128,879.  The expenses,  exclusive of Employment Solutions,  during the year
ended August 31, 2002 include  salaries  and related  costs of $216,723;  legal,
accounting,  and shareholder  related  expenses of $66,482;  rent of $29,100 and
other  administrative  expenses of $45,901.  The expenses  during the year ended
August 31, 2002 also include  selling and  administrative  expenses  incurred by
Employment  Solutions  during the year ended August 31, 2002 of $116,097 and the
amortization  of customer  related  intangible  assets of  $64,292.  General and

                                       6
<PAGE>

administrative  expenses  increased  from fiscal 2002 to fiscal 2003 because the
Company had twelve months of  operations  in fiscal 2003 and only  approximately
six months of operations in fiscal 2002.

         Interest  expense  incurred  during the year ended  August 31, 2003 was
$149,760  as compared to $105,483  during the year ended  August 31,  2002.  The
increase  in interest  expense  resulted  primarily  from  interest  incurred on
borrowings relating to the acquisition of Employment Solutions.  Interest income
and other income (primarily from earnings on cash  investments)  during the year
ended  August  31,  2003 was $856 as  compared  to $3,471  during the year ended
August 31, 2002.

       INCOME TAXES

         During  fiscal year 2003 and 2002,  net deferred tax benefits  were not
recorded relating to temporary differences since the Company is not assured that
the  resulting  additional  deferred tax assets will be realized.  See "Critical
Accounting Policies" below.

         LEASED PROPERTIES

         For a  description  of the Company's  arrangements  with respect to its
current lease obligations, reference is made to Part I, Item 2 - "Description of
Property," which is incorporated herein by reference.

LIQUIDITY AND CAPITAL RESOURCES

         ANTICIPATED LIQUIDITY REQUIREMENTS

         Certain of the Company's  shareholders  have  advanced  funds under the
debt arrangements discussed below under "Debt Arrangements". At August 31, 2003,
the Company's liabilities exceeded its assets by $193,556.

         The Company  anticipates  that its cash balances and cash  generated by
the  operations  of  Employment  Solutions  will be  sufficient to fund its cash
requirements during the next twelve months.

         Employment  Solutions  collects from its customers and pays the workers
each  week for  work  performed  during  the  previous  week.  Typically  at the
beginning of each week Employment Solutions invoices its customers for the hours
worked during the previous week and the customers typically pay during that same
week.  Although the customers have paid for services provided as described above
during the period  since  March 4, 2002,  the  Company is  dependent  upon a few
customers and can give no assurance that these customers will continue to pay in
a timely manner.

         CASH

         The  Company  had cash in the amount of  $233,055 at August 31, 2003 as
compared to $165,267 as of August 31, 2002.

         DEBT ARRANGEMENTS

         On August 31,  2001,  Minor H.  Mickel,  the mother of Buck A.  Mickel,
President and Chief Executive Officer and a director and significant shareholder
of the  Company,  and  Charles C.  Mickel,  Vice  President  and a director  and
significant  shareholder of the Company,  loaned the Company  $250,000 under the
terms of an  unsecured  note  payable  bearing  interest at 8% per year with the
principal balance due on August 14, 2006.

         On February 14,  2002,  Minor H. Mickel  loaned the Company  $1,200,000
under the terms of an  unsecured  note payable  bearing  interest at 7% per year
with the principal  balance due on February 14, 2007. On February 25, 2002, Buck
A.  Mickel,  Charles C. Mickel and their  adult  sister,  (who is a  significant

                                       7
<PAGE>

shareholder  of the Company) each loaned the Company  $20,000 under the terms of
unsecured  notes  payable  bearing  interest  at 7% per year with the  principal
balance due on February 25,  2007.  Total  proceeds of these loans,  aggregating
$1,260,000, were used in the purchase of Employment Solutions.

         On March 4, 2002,  the  Company  through its  wholly-owned  subsidiary,
Employment  Solutions,  issued a note in the  principal  amount of  $800,000  to
Employment Solutions, LLC as part of the purchase price of Employment Solutions'
business. The note is payable in equal monthly installments of $15,466 over five
years at an interest at the rate of 6% per year and is secured by the  Company's
pledge of the common stock of Employment Solutions.

         On October 10, 2002, the Company through its  wholly-owned  subsidiary,
Employment  Solutions,  incurred long-term debt in the amount of $30,393 payable
in equal monthly  installments of $520 over six years at an interest at the rate
of 7% per year. The note is secured by a truck.

         DEBT CONVERTED INTO COMMON STOCK

         On December 20, 2000, Minor H. Mickel loaned the Company $500,000 under
an 8%  convertible  note payable on December  20, 2005.  Under the terms of this
note all principal and interest was  convertible at the conversion rate of $.075
per share at the option of either the Company or holder of the convertible note.
Effective  January  21,  2002,  the  entire  principal  amount of  $500,000  was
converted into 6,666,666 shares of the Company's common stock.

OFF-BALANCE SHEET ARRANGEMENTS

         The Company has no significant off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICY

           The Company has adopted various accounting  policies which govern the
application of accounting  principles generally accepted in the United States of
America  in  the  preparation  of  our  financial  statements.  The  significant
accounting  policies  of the  company  are  described  in the  footnotes  to the
consolidated financial statements at August 31, 2003.

         Certain   accounting   policies  involve   significant   judgments  and
assumptions by management  which have a material impact on the carrying value of
certain assets and liabilities; management considers such accounting policies to
be  critical  accounting  policies.   The  judgments  and  assumptions  used  by
management  are based on  historical  experience  and other  factors,  which are
believed to be reasonable under the circumstances.  Because of the nature of the
judgments and assumptions  made by management,  actual results could differ from
these judgments and estimates which could have a material impact on the carrying
values of assets and liabilities and the results of operations of our company.

           The Company  believes  that the  valuation  allowance  related to the
deferred  tax asset is a  critical  accounting  policy  that  requires  the most
significant  judgments and estimates  used in  preparation  of our  consolidated
financial  statements.  When income and  expenses  are  recognized  in different
periods for financial  reporting  purposes than for purposes of computing income
taxes currently payable, deferred tax assets or liabilities are provided on such
temporary differences.  The Company accounts for income taxes in accordance with
SFAS No. 109,  Accounting  for Income  Taxes.  Under SFAS No. 109,  deferred tax
assets and liabilities  are recognized for the expected future tax  consequences
of events that have been recognized in the consolidated  financial statements or
tax return.  Deferred tax assets and  liabilities are measured using the enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary differences are expected to be realized or settled.

         At August 31, 2003,  the Company has net operating  loss  carryforwards
("NOLs")  available for income tax purposes of approximately  $12,731,000.  Such
carryforwards  expire in 2006 through  2022.  The  Company's  ability to use its

                                       8
<PAGE>

existing net  operating  loss  carryforward  may be  jeopardized  or lost if the
Company undergoes an "ownership change" as defined by the Internal Revenue Code.
Under SFAS No.  109,  the  Company  can record a net  deferred  tax asset on its
balance sheet and a net deferred tax benefit on its income statement  related to
its NOLs if it believes  that it is more likely than not that it will be able to
utilize its NOLs to offset future  taxable  income  utilizing  certain  criteria
required by SFAS No. 109. If the Company does not believe,  based on the balance
of the  evidence,  that it is more likely than not that it can fully utilize its
NOLs, it must reduce its deferred tax asset to the amount that is expected to be
realized through future realization of profits.

         Because  the  Company  did not have net income in fiscal 2003 and 2002,
SFAS No. 109  required  that the Company not carry any net deferred tax asset on
its balance sheets for August 31, 2003 or record any net deferred tax benefit on
its income statements for the years ended on such dates. If the Company had been
permitted  under  SFAS No.  109 to record a full net  deferred  tax asset on its
balance sheet at August 31, 2003, the amount of the net deferred tax asset would
have been $4,765,000,  and if the Company had similarly been permitted to show a
full net deferred tax benefit on its income  statement for the year ended August
31, 2003, the amount of the benefit would have been $4,000.

         The  analysis of available  evidence is performed on an ongoing  basis.
Adjustments to the valuation allowance are made accordingly. Were the Company to
become profitable before its NOLs expire or are otherwise lost, it would be able
to utilize them to offset future taxable income, reducing its income tax expense
and increasing  its net earnings,  and the Company would be able to record a net
deferred  tax asset on its balance  sheet.  There can be no  assurance  that the
Company  will  become  profitable  or that it will be able to utilize any of its
NOLs. If the Company does become profitable and utilize its NOLs, any recordable
deferred  tax asset could be  substantially  different  from the August 31, 2003
amount set forth in the preceding paragraph.

RISK FACTORS

         The Company is dependent on a few customers in that the majority of its
revenues are from three customers.  During the year ended August 31, 2003, these
customers accounted for over 50% of the Company's  revenues.  The contracts that
the Company has with its customers are generally  short-term and the Company can
give no assurance  that these  customers will continue to need the services that
it provides.

         The Company is continually  subject to the risk of new regulations that
could materially impact its business.

         The Company must continually attract reliable workers to fill positions
and may from time to time experience  shortages of available  temporary workers.
The Company can give no assurance  that its supply of labor will  continue to be
available.

ITEM 7.  FINANCIAL STATEMENTS

          The response to this Item is set forth on page F-2 and  submitted as a
separate section of this report.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None

ITEM 8A.  CONTROLS AND PROCEDURES

         Our  disclosure  controls  and  procedures  are our  controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the  reports we file or submit  under the  Securities  Exchange  Act of
1934, as amended,  processed,  summarized and reported,  within the time periods
specified  in the rules and forms of the  Securities  and  Exchange  Commission.
Disclosure  controls and procedures  include  without  limitation,  controls and

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<PAGE>

procedures designed to ensure that information required to be disclosed by us in
the  reports  we file or  submit  under  the  Exchange  Act is  accumulated  and
communicated to our management,  including our Chief Executive Officer and Chief
Financial Officer,  as appropriate to allow timely decisions  regarding required
disclosure.

         Our management,  with the  participation of our Chief Executive Officer
and  our  Chief  Financial  Officer  has  evaluated  the  effectiveness  of  our
disclosure   controls  and  procedures   (as  defined  in  17  C.F.R.   Sections
240.13a-15d--15(e))  as of August 31, 2003,  and based on such  evaluation,  our
Chief Executive Officer and Chief Executive Officer concluded that such controls
and procedures were effective as of August 31, 2003.

         There  were  no  significant  changes  in our  internal  controls  over
financial  reporting that occurred  during the fiscal year ended August 31, 2003
that have materially  affected,  or are reasonably likely to materially  affect,
our internal controls over financial reporting.





















                                       10
<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

<TABLE>
<CAPTION>

                            DIRECTORS OF THE COMPANY


  Name, Age and Tenure as
          Director                    Principal Occupation and Background
----------------------------  --------------------------------------------------

<S>                           <C>
C.C. Guy (71)                 Director of the Company.  Mr. Guy served as President of the Company
Director since 1978 (1)(2)    from July 1989 until his retirement in January 1995.  Since his
                              retirement, he has served as a consultant to the Company on an
                              as-needed basis. Mr. Guy was Vice President-Administration of the
                              Company from 1978 to July 1989.  Mr. Guy served from October 1979 to
                              November 1989 as President, Treasurer and a director of RSI
                              Corporation.  Mr. Guy currently serves as a director of Delta Woodside
                              Industries, Inc. and Delta Apparel, Inc.

Charles M. Bolt (73)          Director of the Company.  Mr. Bolt was President and Chief Executive
Director since 1982 (1)(2)    Officer of the Company from 1984 to July 1989, when he was elected
                              President of Distribution, a position that he held until his
                              retirement in January 1995.  Since his retirement, he has served as a
                              consultant to the Company on an as-needed basis.  Mr. Bolt was Vice
                              President-Marketing of the Company from 1978 to 1984.

Buck A. Mickel (48)           Director of the Company.  Mr. Mickel was elected President and Chief
Director from 1988 to 1992    Executive Officer of the Company on July 28, 1998 following the death
and 1997 to present  (1)      of his father,  Mr. Buck Mickel.  Mr. Mickel was Vice President of the
                              Company from 1989 to January 1995 and from September 1996 to July
                              1998.  Mr. Mickel served as a consultant to the Company from January
                              1995 to September 1996.  Mr. Mickel served as a director of the
                              Company or its former parent corporation from 1987 until December
                              1992.  Mr. Mickel currently serves as a director of Delta Woodside
                              Industries, Inc. and Delta Apparel, Inc.

Charles C. Mickel (46)        Director of the Company.  Mr. Mickel was elected Vice President on
Director since 2001 (1)(2)    September 1, 2003.  Mr. Mickel served as vice president of U. S.
                              Shelter Corporation from 1981 to 1990 and vice president of asset
                              management of Insigna Financial Group, Inc., the successor of U. S.
                              Shelter Corporation, from 1990 to 1992.  Since July 1992 Mr. Mickel
                              has been a private investor in commercial real estate.  Mr. Mickel is
                              Buck A. Mickel's brother.

Joe F. Ogburn (65)            Director of the Company.  Mr. Ogburn served as Secretary, Treasurer
Director since 2001           and Chief Financial Officer of the Company since January 2001.  Mr.
                              Ogburn served as Treasurer of the Company since September 1988 and
                              Vice President of the Company since May 1995.  Mr. Ogburn served as
                              Controller of the Company from 1981 to September 1988.  Mr. Ogburn
                              served as a Director of the Company from September 1987 to July 1989.
</TABLE>

(1) Member of Compensation  Committee.
(2) Member of Audit Committee.

         The Board of  Directors  of the Company met in person four times during
the fiscal year ended August 31, 2003. The Compensation Committee of the Company
met once during the fiscal  year.  The Audit  Committee  of the Company met five
times  during  the  fiscal  year.  Each  Director  attended  at least 75% of the
meetings of the Board and of any  committee of which he was a member.  The Board
does not have a standing nominating committee.

         The  Compensation  Committee  reviews  and  submits  to  the  Board  of
Directors  suggested salaries and other compensation for officers of the Company
and its subsidiaries for the ensuing year.

         The  Audit  Committee  generally  makes  recommendations  to the  Board
regarding  the  selection of the  independent  public  accountants,  reviews the
independence  of such  accountants,  approves  the  scope of the  annual  audit,
approves the  rendering of any material  non-audit  services by the  independent
accountants,  approves  the fee  payable  to the  independent  accountants,  and
reviews the audit results.

                                       11
<PAGE>

                               EXECUTIVE OFFICERS

         The  following  table  provides  certain   information   regarding  the
executive officers of the Company:


Name and Age                Position
--------------------------- -------------------------------------------------
Buck A. Mickel (48)         President and Chief Executive Officer

Charles C. Mickel (46)      Vice President (appointed September 1, 2003)

Joe F. Ogburn (65)          Secretary, Treasurer and Chief Financial Officer

         The  Company's  executive  officers  are  appointed  by  the  Board  of
Directors and serve at the pleasure of the Board.  Buck A. Mickel and Charles C.
Mickel are brothers.

             Section 16(a) Beneficial Ownership Reporting Compliance

             Based  solely  upon a review  of  Forms  3, 4 and 5 and  amendments
thereto  furnished  to the  Company  during and with  respect to its most recent
fiscal year, the Company believes that all of its executive officers,  directors
and persons who may have been deemed to be greater than 10% stockholders  during
the year have timely made all filings required to be made under Section 16(a) of
the Securities  Exchange Act of 1934, as amended except that Minor M. Shaw filed
one Form 4 in  fiscal  2003  that was due in fiscal  2002  with  respect  to one
transaction  and Charles  Bolt failed to file one Form 4 that was required to be
filed in fiscal  2002 with  respect to one  transaction  and which will be filed
promptly.

























                                       12
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

         The   following   table  sets  forth  certain   information   regarding
compensation  paid by the  Company  during  the last three  fiscal  years to the
Company's Chief Executive  Officer (the "Named Executive  Officer").  The salary
and  bonuses  of each  other  executive  officer  of the  Company  was less than
$100,000 during fiscal years 2001 through 2003.
<TABLE>
<CAPTION>

                                   Summary Compensation Table


                                                                                    Annual
                                                                                 Compensation
                                                                            ---------------------
                 Name and Principal Position                 Fiscal Year          Salary $
     ----------------------------------------------------- ---------------- ---------------------
<S>                                                             <C>                <C>
     Buck A. Mickel, President and Chief Executive              2003               90,083
     Officer
                                                           ---------------- ---------------------
                                                                2002               55,333
                                                           ---------------- ---------------------
                                                                2001               20,000
                                                           ---------------- ---------------------
</TABLE>

         Most of the Company's employees, as well as its executive officers, are
eligible to participate in the Company's medical and health benefit plan.

         During the year ended  August 31,  2003,  the  Company  did not pay any
other  compensation  to  its  directors  except  as  set  forth  in  "Retirement
Contracts" below.

         The  following  table sets forth the  number of shares  underlying  the
Named Executive  Officer's  exercisable and unexercisable  stock options.  There
were no stock  options  granted  to the Named  Executive  Officer  and the Named
Executive  Officer  did not  exercise  any stock  options  during the year ended
August 31, 2003.
<TABLE>
<CAPTION>

                  AGGREGATE EXERCISABLE AND UNEXERCISABLE STOCK OPTIONS AT FISCAL YEAR-END

         ------------------------------------- ------------------------------------ --------------------------

                                                Number Of Unexercised Securities      Value of Unexercised
                                                Underlying Options/SARs at Fiscal         In-the-Money
                                                          Year-End (#)               Options/SARS at Fiscal
                         Name                             Exercisable/                    Year-End ($)
                                                          Unexercisable             Exercisable/Unexercisable
         ------------------------------------- ------------------------------------ --------------------------

         <S>                                             <C>                                <C>
         Buck A. Mickel, President and Chief             126,666/200,000                    $300/$600
         Executive Officer
         ------------------------------------- ------------------------------------ --------------------------

</TABLE>

         RETIREMENT CONTRACTS

         Messrs. C.C. Guy and Charles M. Bolt retired as officers of the Company
on January 17, 1995.  The Company paid each of these two retired  officers  $100
per month  during the year ended August 2003.  The Board  determined  that these
payments were appropriate in light of these officers' long records of service to
the Company and value as  consultants  to the Company.  The Company  anticipates
that these individuals will continue to serve as consultants  during fiscal year
2004.


                                       13
<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth certain  information as of November 17,
2003,  regarding  the  beneficial  ownership of the Common Stock by: (i) persons
beneficially  owning  more than  five  percent  of the  Common  Stock;  (ii) the
directors  and  executive  officers of the Company;  and (iii) all directors and
executive officers of the Company, as a group. Unless otherwise indicated in the
notes to the table,  the Company  believes  that the persons  named in the table
have sole voting and  investment  power with respect to all the shares of Common
Stock shown as beneficially owned by them.

                                                Amount and
                                                 Nature of
          Name and Address of                   Beneficial          Percent
           Beneficial Owner                      Ownership        of Class (7)
--------------------------------------------------------------------------------
Buck A. Mickel                                3,413,975 (1)           39.9
28 East Court Street
P. O. Box 6847 Greenville, SC 29606

C.C. Guy                                         54,295 (2)            0.6
1405 Stonegate Lane
Shelby, NC 28150

Charles M. Bolt                                  98,184 (3)            1.2
2720 N. E. 57th Street
Fort Lauderdale, FL 33308

Charles C. Mickel                             1,470,518 (4)           17.2
28 East Court Street
P. O. Box 6847
Greenville, SC 29606

Minor Mickel Shaw                                705,362               8.3
P. O. Box 795
Greenville, SC 29602

Joe F. Ogburn                                   161,990 (5)            1.9
208 Belvedere Avenue
Shelby, NC 28150

All Directors and Executive Officers          5,198,962 (6)           60.8
of the Company as a Group (6 persons)

(1) Mr. Buck A. Mickel is the President,  Chief Executive Officer and a director
of the Company.  The number of shares shown as beneficially owned by Mr. Buck A.
Mickel includes  3,087,309 shares directly owned by him, 150,000 shares owned by
him as  custodian  for his minor child and 126,666  unissued  shares  subject to
stock options held by Mr. Mickel which are currently exercisable.  The number of
shares shown also includes  50,000 shares held by Mr. Mickel's wife, as to which
shares Mr. Mickel disclaims beneficial ownership.

(2) Mr. C.C.  Guy is a director of the  Company.  The number of shares  shown as
beneficially  owned by Mr. Guy includes  26,307 shares directly owned by him and
9,999  unissued  shares  subject  to stock  options  held by Mr.  Guy  which are
currently  exercisable.  The number of shares shown also includes  17,989 shares
held by Mr.  Guy's  wife,  as to  which  shares  Mr.  Guy  disclaims  beneficial
ownership.

(3) Mr. Charles M. Bolt is a director of the Company. The number of shares shown
as  beneficially  owned by Mr. Bolt includes 88,185 shares directly owned by him
and 9,999  unissued  shares  subject to stock options held by Mr. Bolt which are
currently exercisable.

(4) Mr. Charles C. Mickel was elected Vice  President  effective on September 1,
2003  and  is a  director  of  the  Company.  The  number  of  shares  shown  as
beneficially  owned by Mr. Charles C. Mickel includes  1,467,185 shares directly

                                       14
<PAGE>

owned by him and 3,333  unissued  shares  subject to stock  options  held by Mr.
Mickel which are currently exercisable.

(5) Mr. Joe F. Ogburn is the Secretary, Treasurer and Chief Financial Officer of
the Company.  The number of shares  shown as  beneficially  owned by Mr.  Ogburn
includes 45,142 shares directly owned by him and 116,665 unissued shares subject
to stock options held by Mr. Ogburn which are currently exercisable. Such number
also  includes  183 shares held by Mr.  Ogburn's  wife,  as to which  shares Mr.
Ogburn disclaims beneficial ownership.

(6) This number  includes all shares included in the table above with respect to
any director or executive officer.

(7)  Pursuant to Rule 13d-3  promulgated  under the  Securities  Exchange Act of
1934, as amended (the "Exchange Act"),  percentages of total outstanding  shares
have been computed on the assumption  that shares that can be acquired within 60
days upon the  exercise  of options by a given  person are  outstanding,  but no
other shares similarly subject to acquisition by other persons are outstanding.



































                                    15
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Certain  information  concerning related party transactions  respecting
the members of the Compensation Committee,  members of their families, and other
executive officers, directors and owners of 5% or more of the outstanding Common
Stock of the Company is set forth below.

         SALARY AND OTHER COMPENSATION ARRANGEMENTS

         As described  herein under Part III,  Item 10 - Executive  Compensation
-"Retirement  Contracts",  the Company pays consulting fees to Messrs.  C.C. Guy
and Charles M. Bolt.

         LOAN ARRANGEMENT

         During August 2001,  Minor H. Mickel loaned the Company  $250,000 under
the terms of an unsecured  note payable  bearing  interest at 8.0% per year with
the principal balance and all unpaid interest due in August 2006. Mrs. Mickel is
the  mother of Buck A.  Mickel,  the  President,  Chief  Executive  Officer  and
director of the company, Charles C. Mickel, the Vice President and a director of
the  Company,  and Minor  Mickel Shaw.  The Mickel  siblings are the  beneficial
owners of approximately 65% of the outstanding common stock of the Company.

         During February 2002, Minor H. Mickel loaned the Company $1,200,000 and
Buck A. Mickel, Charles C. Mickel and Minor Mickel Shaw, each loaned the Company
$20,000 under unsecured  promissory notes bearing interest at 7.0% per year with
the principal  balances and all unpaid  interest due in February 2007.  Proceeds
from these notes aggregating  $1,260,000 were used to purchase the assets of the
Company's wholly-owned subsidiary, Employment Solutions, Inc.

         CORPORATE OFFICE ARRANGEMENT

         During fiscal 2003, the Company's  executive  offices were located in a
facility consisting of approximately 3,000 square feet of floor space located at
28 East Court Street, Greenville,  South Carolina. Rental expense of $30,600 was
incurred by the Company  during the year ended August 31, 2003 for the Company's
executive offices under a month-to-month lease arrangement. The lease at 28 East
Court  Street,   Greenville,   South  Carolina  includes  office  furniture  and
equipment. The office space at 28 East Court Street, Greenville,  South Carolina
was leased from CTST, LLC, which is owned by three shareholders: Buck A. Mickel,
Charles C. Mickel and Minor Mickel Shaw.  The Company  believes  that this lease
contains  provisions  as  favorable  to the Company as could be obtained  from a
third-party landlord.












                                       16
<PAGE>
<TABLE>
<CAPTION>

ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K

<S>           <C>
(a)           Listing of Exhibits

2.1           Agreement for Sale and Purchase of Assets dated March 4, 2002, by and between the Company, Employment Solutions, Inc.
              (then known as Employment Solutions Acquisition, Inc.), Employment Solutions, LLC, Eadon Solutions, Inc. and Marion L.
              Eadon, Jr.:  Incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K of the Company dated March
              4, 2002 and filed with the Commission on March 18, 2002 (the "March 4, 2002 Form 8-K").

3.1           Articles of Incorporation of RSI Holdings, Inc., as amended: Incorporated by reference to Exhibit 3.2 and 3.2.2 to the
              Registration Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc., File No. 33-30247 (the "Form S-4").

3.1.1         Articles of Amendment and Certificate of Reduction of Capital of Porter Brothers, Inc.: Incorporated by reference to
              Exhibit 4.1 to the Form 8-K of the Registrant filed with the Securities and Exchange Commission on November 28, 1989,
              File No. 0-7067.

3.2.1         By-laws of RSI Holdings, Inc., as amended: Incorporated by reference to Exhibit 3.1.1 to the Form S-4.

3.2.2         Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2 to the Form 10-KSB of the Registrant filed with the
              Securities and Exchange Commission for the fiscal year ended August 31, 1996, File No. 0-18091.

4.1           See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.

4.2           Specimen of Certificate for RSI Holdings, Inc., common stock: Incorporated by reference to Exhibit 4.1.2 to the Form
              S-4.

*10.1         RSI Holdings, Inc., Stock Option Plan, including an amendment: Incorporated by reference to Exhibit 10.9 to the Form
              10-K of the Registrant filed with the Securities and Exchange Commission for the fiscal year ended August 31, 1990,
              File No. 0-18091 (the "1990 Form 10-K").

*10.1.1       Amendment No. 2 to Stock Option Plan: Incorporated by reference to Exhibit 10.9.1 to the Form 10-K of the Registrant
              filed with the Securities and Exchange Commission for the fiscal year ended August 31, 1992, as amended, File No.
              0-18091 (the "1992 Form 10-K").

*10.1.2       Amendment No. 3 to Stock Option Plan: Incorporated by reference to Exhibit 99.1 to the Company's Registration
              Statement on Form S-8 filed with the Securities and Exchange Commission on September 9, 1998 (Commission File No.
              333-63109).

*10.1.3       Amendment No. 4 to Stock Option Plan: Incorporated by reference to Exhibit 99.1 to the Company's Registration
              Statement on Form S-8 filed with the Securities and Exchange Commission on February 10, 1999 (Commission File No.
              333-72101).

*10.1.4       Amendment No. 5 to Stock Option Plan: Incorporated by reference to Exhibit A to the Company's Definitive Proxy
              Statement filed with the Securities and Exchange Commission on December 30, 1999 (Commission File No. 333-72101).

                                       17
<PAGE>

*10.2         RSI Holdings, Inc., 2002 Stock Option Plan:  Incorporated by reference to the Form 10-KSB of the Registrant filed with
              the Securities and Exchange Commission for the year ended August 31, 2002, File No. 0-18091.

*10.3         Stock Option Agreement by and between the Registrant and C. C. Guy dated as of January 21, 1999:  Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
              August 31, 2002, File No. 0-18091.

*10.4         Stock Option Agreement by and between the Registrant and Charles M. Bolt dated as of January 21, 1999: Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange  Commission for the year ended
              August 31, 2002, File No. 0-18091.

*10.5         Stock Option Agreement by and between the Registrant and C. C. Guy dated as of August 18, 1999: Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
              August 31, 1999, File No. 0-18091.

*10.6         Stock Option Agreement by and between the Registrant and Charles M. Bolt dated as of August 18, 1999: Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
              August 31, 1999, File No. 0-18091.

*10.7         Stock Option Agreement by and between the Registrant and Charles C. Mickel dated as of June 10, 2002: Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
              August 31, 2002, File No. 0-18091.

*10.8         Stock Option Agreement by and between the Registrant and C. C. Guy dated as of June 10, 2002:  Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
              August 31,  2002, File No. 0-18091.

*10.9         Stock Option Agreement by and between the Registrant and Charles M. Bolt dated as of June 10,  2002: Incorporated by
              reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
              August 31, 2002, File No. 0-18091.

10.10.1       Promissory Note dated March 4, 2002 in the principal amount of $800,000 from Employment Solutions, Inc. to Employment
              Solutions, LLC:  Incorporated by reference to Exhibit A to Exhibit 10.11 of the March 4, 2002 Form 8-K.

10.10.2       Pledge & Security Agreement dated March 4, 2002 by and between the Company and Employment Solutions, LLC: Incorporated
              by reference to Exhibit B to Exhibit 10.11 of the March 4, 2002 Form 8-K.

10.10.3       Employment Agreement dated March 4, 2002 by and between Employment Solutions, Inc. and Marion L. Eadon, Jr.:
              Incorporated by reference to Exhibit C to Exhibit 10.11 fo the March 4, 2002 Form 8-K.

10.12         Promissory Note in the principal amount of $250,000 from the Company to Minor H. Mickel dated August 14, 2001.

10.13         Promissory Note in the principal amount of $1,200,000 from the Company to Minor H. Mickel dated  February 14, 2002:
              Incorporated by reference to Exhibit 10.13 of the March 4, 2002 Form 8-K.

10.14.1       Promissory Note in the principal amount of $20,000 from the Company to Buck A. Mickel dated February 25, 2002.

                                       18
<PAGE>

10.14.2       Promissory Note in the principal amount of $20,000 from the Company to Charles C. Mickel dated February 25, 2002.

10.14.3       Promissory Note in the principal amount of $20,000 from the Company to Minor Mickel Shaw dated February 25, 2002.

21.           Subsidiaries of the Registrant.

23.           Consent of Independent Certified Public Accountants.

31.1          Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
              2003.

31.2          Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
              2003.

32.1          Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
              2003.

32.2          Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
              2003.

* Management  contract or  compensatory  plan required to be filed as an exhibit
pursuant to Item 13 of Form 10-KSB.

         (b) Reports on Form 8-K:

                  None.

</TABLE>












                                       19
<PAGE>


                                   SIGNATURES




In  accordance  with  Section 13 or 15 (d) of the Exchange  Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                               RSI HOLDINGS, INC.

                             By: /s/ Buck A. Mickel
                                 ---------------------------------------
                                 Buck A. Mickel
                                 President and Chief Executive Officer

                             Date: November 25, 2003

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.



/s/ Buck A. Mickel     November 25, 2003  Director, President and
Buck A. Mickel               (Date)       Chief Executive Officer
                                          (Principal Executive Officer)

/s/ Charles C. Mickel  November 25, 2003  Director, Vice President
Charles C. Mickel          (Date)


/s/ C. C. Guy          November 25, 2003  Director
C. C. Guy                  (Date)


/s/ Charles M. Bolt    November 25, 2003  Director
Charles M. Bolt            (Date)



/s/ Joe F. Ogburn      November 25, 2003    Director, Vice President, Secretary
Joe F. Ogburn              (Date)           and Treasurer (Principal Financial
                                            and Accounting Officer)







                                       20

<PAGE>











                          ANNUAL REPORT ON FORM 10-KSB

                   ITEM 7, ITEM 14(A)(1) AND (2), (C) AND (D)

                          LIST OF FINANCIAL STATEMENTS

                              FINANCIAL STATEMENTS

                           YEAR ENDED AUGUST 31, 2003

                               RSI HOLDINGS, INC.

                           GREENVILLE, SOUTH CAROLINA





















                                       F-1


<PAGE>


                               RSI HOLDINGS, INC.

                        FORM 10-KSB-ITEM 14(A)(1) AND (2)

                          INDEX OF FINANCIAL STATEMENTS


The  following  consolidated  financial  statements  of RSI  Holdings,  Inc. are
included in Item 7:


     Consolidated balance sheet - August 31, 2003

     Consolidated statements of operations - For the years ended August 31, 2003
        and 2002

     Consolidated  statements  of  shareholders'  deficit - For the years  ended
        August 31, 2003 and 2002

     Consolidated statements of cash flows - For the years ended August 31, 2003
        and 2002

     Notes to consolidated financial statements - August 31, 2003




























                                       F-2


<PAGE>




                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
RSI HOLDINGS, INC.
Greenville, South Carolina

         We have audited the  consolidated  balance sheet of RSI HOLDINGS,  INC.
AND SUBSIDIARIES as of August 31, 2003 and the related  consolidated  statements
of operations,  shareholders'  deficit and cash flows for the years ended August
31,  2003  and  2002.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards  require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

         In our opinion,  the consolidated  financial  statements referred to in
the first paragraph present fairly, in all material  respects,  the consolidated
financial position of RSI HOLDINGS, INC. AND SUBSIDIARIES as of August 31, 2003,
and the related  consolidated  results of operations and cash flows for the year
ended  August  31,  2003  and  2002 in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                                /s/ Elliott Davis, LLC

Greenville, South Carolina
September 30, 2003


















                                       F-3

<PAGE>


                               RSI HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEET
                                 AUGUST 31, 2003

                                     ASSETS
CURRENT ASSETS
     Cash                                                            $  233,055
     Accounts receivable                                                119,688
     Prepaid expenses and other                                          17,952
                                                                    -----------

Total current assets                                                    370,695

Property and equipment:
     Cost                                                               130,801
     Less accumulated depreciation                                       47,556
                                                                     ----------

         Property and equipment - net                                    83,245

Other assets:
     Customer related intangible assets, net of
         amortization of $193,172                                     1,743,117
                                                                      ---------

                                                                     $2,197,057


             LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable                                               $    88,455
     Accrued expenses                                                    51,091
     Current maturities of long-term debt                               159,198
                                                                     ----------
         Total current liabilities                                      298,744

LONG-TERM DEBT AND OTHER LIABILITIES
         Long-term debt                                               1,962,302
         Accrued interest                                               129,567

Commitments and contingencies

SHAREHOLDERS' DEFICIT:
     Common Stock, $.01 par value-authorized
         25,000,000 shares, issued and outstanding
         7,846,455 shares                                                78,464
     Additional paid-in capital                                       4,951,741
     Deficit                                                         (5,223,761)
                                                                     -----------

     Total shareholders' deficit                                       (193,556)
                                                                     -----------

                                                                     $2,197,057

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-4


<PAGE>

<TABLE>
<CAPTION>

                               RSI HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE YEARS ENDED AUGUSTS 31, 2003 AND 2002

                                                                 For the          For the
                                                                  Year              Year
                                                                  Ended             Ended
                                                                August 31         August 31
                                                                  2003               2002

<S>                                                            <C>               <C>
REVENUES FROM SERVICES                                         $ 5,314,156       $ 2,265,342
COST OF SERVICES                                                 4,307,446         1,813,228
                                                              ------------     -------------

GROSS PROFIT                                                     1,006,710           452,114

EXPENSES:
     Selling, general and administrative                           873,441           538,595
                                                             -------------     -------------
Income (loss) from operations                                      133,269           (86,481)

OTHER INCOME (EXPENSE):
     Interest income and other                                         856             3,471
     Interest expense                                             (149,760)         (105,483)
                                                             --------------    --------------

     Total other income (expense)                                 (148,904)         (102,012)
                                                             --------------    --------------

NET LOSS                                                     $     (15,635)    $    (188,493)
                                                             ==============    ==============

NET LOSS PER SHARE - BASIC AND DILUTED                       $        (.00)    $        (.03)
                                                             ==============    ==============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING*                    7,836,592         6,950,983
                                                             ==============    ==============



</TABLE>





*   The weighted average number of shares  outstanding  have been  retroactively
    adjusted for the three-to-one reverse stock split. See Note 5.


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       F-5


<PAGE>
<TABLE>
<CAPTION>

                               RSI HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
                  FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002




                                             COMMON STOCK        ADDITIONAL
                                        --------------------      PAID-IN
                                        SHARES        AMOUNT      CAPITAL       DEFICIT           TOTAL
                                        ------        ------     ----------     -------           -----


<S>                                   <C>           <C>          <C>            <C>             <C>
BALANCE, AUGUST 31, 2001              16,798,154    $167,981     $4,355,733     $(5,019,633)    $(495,919)


     Conversion of debt to
         common stock                  6,666,666      66,666        433,334                       500,000
     Three-to-one reverse
         stock split                 (15,643,365)   (156,433)       156,424                      (      9)

     Net loss                                                                      (188,493)     (188,493)
                                      -----------   ---------   ------------    ------------    ----------

BALANCE, AUGUST 31, 2002               7,821,455      78,214      4,945,491      (5,208,126)     (184,421)


     Exercise of stock options            25,000         250          6,250                         6,500

     Net loss                                                                       (15,635)      (15,635)
                                      -----------   ---------   ------------    ------------    ----------

BALANCE, AUGUST 31, 2003                7,846,455   $ 78,464    $  4,951,741    $(5,223,761)    $(193,556)
                                      ============  ========    ============    =============   ==========


</TABLE>


















          The  accompanying  notes are an  integral  part of these  consolidated
financial statements.

                                       F-6

<PAGE>
<TABLE>
<CAPTION>

                               RSI HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002

                                                                                    For the           For the
                                                                                      Year              Year
                                                                                     Ended              Ended
                                                                                   August 31          August 31
                                                                                      2003               2002
                                                                                   ---------          ---------
OPERATING ACTIVITIES
<S>                                                                                 <C>          <C>
     Net loss                                                                       $ (15,635)   $    (188,493)
     Adjustments to reconcile net loss to net
         cash provided by (used for) operating activities
         Depreciation and amortization                                                151,615           71,701
         Loss on disposal of property and equipment                                         -            1,266
         Changes in operating assets and liabilities
              Accounts receivable                                                      11,212          (54,177)
Prepaid expenses and other                                                              3,267          (18,131)
              Accounts payable, accrued expenses and other liabilities                 71,789           48,100
                                                                                  -----------      -----------
                  Net cash provided by (used for) operating activities                222,248         (139,734)
                                                                                  -----------      -----------

INVESTING ACTIVITIES
     Proceeds from sale of property and equipment                                           -            4,923
     Purchase of property and equipment                                               (34,604)         (36,659)
     Net cash paid for acquired business                                               (7,519)      (1,168,192
                                                                                  ------------     -----------

              Net cash (used for) investing activities                                (42,123)      (1,199,928)
                                                                                  ------------     -----------

FINANCING ACTIVITIES
     Proceeds from long-term notes payable                                             30,393        1,260,000
     Payment of long-term debt and other                                             (149,230)         (69,663)
     Proceeds from exercise of stock options                                            6,500             -
                                                                                  -----------      -----------

         Net cash (used for) provided by financing activities                        (112,337)       1,190,337
                                                                                  ------------     -----------

         Net increase (decrease) in cash                                               67,788         (149,325)

CASH, BEGINNING OF PERIOD                                                             165,267          314,592
                                                                                  -----------      -----------

CASH, END OF PERIOD                                                               $   233,055      $   165,267
                                                                                  ===========      ===========

SUPPLEMENTAL DISCLOSURE

     Cash paid for interest                                                       $    70,190      $    47,682
                                                                                  ===========      ===========

NON-CASH TRANSACTION

     Conversion of note payable to common stock                                   $         -      $   500,000
                                                                                  ===========      ===========

</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-7


<PAGE>


                               RSI HOLDINGS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

NATURE OF BUSINESS

         On January 18, 2002,  RSI Holdings,  Inc. (the  "Company"),  executed a
letter  of intent  to  acquire  substantially  all of the  assets of  Employment
Solutions, LLC, a South Carolina limited liability company.

         On March 4, 2002,  the  Company  through a  newly-formed,  wholly-owned
subsidiary,   Employment   Solutions,   Inc.,  a  South   Carolina   corporation
("Employment Solutions"), acquired substantially all of the assets of Employment
Solutions,   LLC,  a  South  Carolina  limited  liability  company.   Employment
Solutions, the only business, is in the business of locating and providing labor
to industrial companies in the United States.  Prior to the asset purchase,  the
Company had not conducted any business since January 31, 2000 other than seeking
acquisition opportunities and liquidating the assets of its prior business.

BASIS OF PRESENTATION

         The accompanying  consolidated  financial statements at August 31, 2003
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America that apply to established operating enterprises.
Refer to the  discussion  below  regarding  the period  from  September  1, 2001
through February 28, 2002 that were reported under those standards that apply to
a development stage enterprise.

DEVELOPMENT STAGE

         As of January 1, 2001, the Company had completed the liquidation of its
prior business and adopted the accounting  principles  generally accepted in the
United States of America that apply to established operating enterprises. During
the period from January 1, 2001 through  February 28, 2002, the Company  devoted
substantially  all its efforts to locating and establishing a new business,  but
had no  operating  business  or  revenues.  As a result,  on January 1, 2001 the
Company  began  reporting  under  those  accounting  principles  that  apply  to
development stage enterprises.  Accounting  principles generally accepted in the
United States of America that apply to established  operating enterprises govern
the  recognition  of revenue by a  development  stage  enterprise  and determine
whether a cost  incurred by a development  stage  enterprise is to be charged to
expense when incurred or is to be capitalized or deferred.

         Effective  with the purchase of  Employment  Solutions on March 4, 2002
the Company began operations which generated  revenues.  As a result the Company
ceased to  report  under  those  standards  that  apply to a  development  stage
enterprise.

PRINCIPLES OF CONSOLIDATION

       The consolidated financial statements include the accounts of the Company
and  its  subsidiaries  (all  of  which  are   wholly-owned).   All  significant
intercompany balances and transactions have been eliminated in consolidation.




                                       F-8
<PAGE>

CASH

       Cash consist of highly liquid investments,  which are readily convertible
into cash and have  maturities  of three months or less at date of  acquisition.
The  Company  places  temporary  cash  investments  in  high  quality  financial
institutions.  At times  such  investments  may be in excess  of FDIC  insurance
limits.

PROPERTY AND EQUIPMENT

       Property and  equipment  consists of office  furniture  and equipment and
trucks  and is stated  at cost.  Depreciation  is  computed  principally  by the
straight-line  method over the estimated useful life of the assets.  The life of
the  furniture  and office  equipment  and trucks  when the asset is acquired is
estimated to be five years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

       The  carrying  amounts  reported in the  balance  sheet for cash and cash
equivalents, accounts receivable, accounts payable and notes payable approximate
their fair values.

NET LOSS PER COMMON SHARE

       Basic net loss per common  share is computed on the basis of the weighted
average  number of common shares  outstanding  in accordance  with  Statement of
Financial  Accounting Standards (SFAS) No. 128, Earnings per Share. The treasury
stock  method is used to  compute  the effect of stock  options on the  weighted
average number of common shares  outstanding for the diluted  method.  Since the
Company  incurred a loss,  the effect of stock  options  on the  treasury  stock
method is anti-dilutive.

REVENUE RECOGNITION

       Revenues are  considered  earned and recorded  during the period in which
the service is provided.

INTANGIBLE ASSETS

        In accordance  with SFAS No. 141,  Business  Combinations,  the Company
has determined that the intangible  portion of the purchase price in conjunction
with the acquisition during March 2002 is customer related intangible assets and
consists  of   customer   list,   customer   contracts   and  related   customer
relationships,   and  noncontractual  customer  relationships.  The  Company  is
amortizing this asset over its estimated fifteen year life.











                                       F-9
<PAGE>

INCOME TAXES

       The consolidated  financial  statements have been prepared on the accrual
basis.  When  income and  expenses  are  recognized  in  different  periods  for
financial  reporting  purposes  than for  purposes  of  computing  income  taxes
currently  payable,  deferred taxes are provided on such temporary  differences.
The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
Accounting  for  Income  Taxes.  Under  SFAS No.  109,  deferred  tax assets and
liabilities  are recognized for the expected  future tax  consequences of events
that  have been  recognized  in the  consolidated  financial  statements  or tax
return.  Deferred tax assets and  liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those  temporary
differences are expected to be realized or settled.

STOCK OPTIONS

       The Company  accounts for and will  continue to account for stock options
under  Accounting  Principles  Board Opinion 25,  Accounting for Stock Issued to
Employees. Applying SFAS No. 123, Accounting for Stock-Based Compensation, would
not materially affect net loss and loss per share for fiscal 2003 and 2002.

         In  December  2002,  the FASB  issued  SFAS  No.  148,  Accounting  for
Stock-Based  Compensation - Transition and Disclosure.  SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to the fair value method of accounting  for  stock-based  employee
compensation. In addition, SFAS No. 148 amends the disclosure provisions of SFAS
No. 123 to require disclosure in the summary of significant  accounting policies
of the effects of an entity's  accounting  policy  with  respect to  stock-based
employee  compensation  on the  reported  net income and  earnings  per share in
annual  and  interim  financial  statements.  SFAS No.  148's  amendment  of the
transition and annual disclosure  requirements of SFAS No. 123 are effective for
fiscal years  beginning  after  December 15, 2002. If the Company does not adopt
the  disclosure  requirements  of SFAS  No.  123 and  expenses  the  stock-based
employee  compensation,  the Company  will be  required to adopt the  disclosure
provisions  of SFAS No. 148 for interim  periods  beginning  after  December 15,
2002.  Accordingly,  the company was required to adopt the disclosure provisions
of SFAS No. 148 for the year ended August 31, 2003. The Company adoption of this
statement did not have a material impact on the Company's financial position and
results of operations.


USE OF ESTIMATES

       The preparation of the financial  statements of the Company in accordance
with accounting  principles  generally  accepted in the United States of America
requires  management to make  estimates  and  assumptions  that affect  reported
amounts.  These  estimates are based on information  available as of the date of
the  financial  statements.  Therefore,  actual  results could differ from those
estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

         Additional  accounting  standards  that have been issued or proposed by
the FASB that do not require  adoption  until a future date are not  expected to
have a material impact on the consolidated financial statements upon adoption.





                                      F-10


<PAGE>

NOTE 2 - CUSTOMER RELATED INTANGIBLE ASSETS

         On March 4, 2002,  the  Company  effected  the  business  combination
with  Employment  Solutions  solely  through  the  distribution  of cash  and by
incurring  liabilities.   The  transaction  had  no  effect  on  equity  or  the
outstanding  shares of the Company or Employment  Solutions.  For these reasons,
the  Company  was  considered  the  acquirer in this  business  combination.  In
accordance  with  SFAS No.  141,  Business  Combinations,  intangible  assets of
$1,936,289 have been recorded as customer related intangible assets.

         The  transaction  also includes a provision that will be accounted for
as a contingency  in the purchase  transaction  based on the future  earnings of
Employment Solutions.  The provision provides for the payment of an annual bonus
of up to 20% of  earnings in excess of  $630,000.  The bonus is to be paid to an
executive  who has no  significant  ongoing  responsibilities  and is additional
consideration for the customer related  intangible assets. The amount to be paid
cannot be determined  beyond a reasonable  doubt and adjustments to the purchase
price will be made annually. During the year ended August 31, 2003 it was agreed
that the bonus for the period from March 4, 2002  through  August 31, 2002 would
be paid based on 20% of  earnings in excess of  $315,000.  Although no bonus was
required  to be paid,  a bonus of $4,273 was paid in  January  2003 for the year
ended  August 31, 2002.  The bonus to be paid based on the  earnings  during the
year ended August 31, 2003 under this contingency is $3,246.

         In accordance with SFAS No. 141, Business Combinations, the Company has
determined that the intangible portion of the purchase price is customer related
intangible assets and consists of customer lists, customer contracts and related
customer relationships,  and noncontractual customer relationships.  The Company
is amortizing this asset over its estimated fifteen year life.


NOTE 3 - ACCRUED EXPENSES AND OTHER LIABILITIES

     Accrued expenses and other liabilities at August 31, 2003 are as follows:

         Payroll taxes                            $     8,958
         Interest                                     135,667
         Legal and accounting                          13,350
         Other                                         22,683
                                                  -----------

                                                    $ 180,658

         Less current portion                          51,091
                                                  -----------

         Non-current portion                        $ 129,567
                                                    =========

         The non-current portion of accrued expenses and other liabilities
consists of interest that has been accrued on the  unsecured  note of $1,200,000
payable  to the  mother of the  President  and Chief  Executive  Officer  of the
Company and the Vice President of the Company. The noteholder does not intend to
require payment of interest during the next year.







                                      F-11

<PAGE>

NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>

<S>                                                                                           <C>
Unsecured  note  payable  to the  mother of the  President  and Chief  Executive
    Officer of the Company with  interest  payable  quarterly at 8.0 percent per
    year. The unpaid principal balance is due on August 14, 2006.                             $    250,000

Unsecured note payable  to  the  mother  of  the  President  and Chief Executive
     Officer of the Company with interest  payable  annually at  7.0 percent per
     year. The unpaid principal balance is due on February 14, 2007.                             1,200,000

Unsecured notes  payable to the  President  and Chief  Executive  Officer of the
     Company,  the Vice  President  of the Company and their adult sister in the
     amount of $20,000 each with  interest  payable  annually at 7.0 percent per
     year. The unpaid principal balance is due on February 25, 2007.                                60,000

Note payable  in the  original  amount  of  $800,000  to  Eadon  Solutions,  LLC
     (formerly  Employment  Solutions,  LLC) in monthly  installments of $15,466
     including  interest  at 6% per year  through  March 4, 2007  secured by the
     outstanding common stock of Employment Solutions, Inc.                                        584,598

Note payable in the original amount of $30,393 to First Citizens Bank in monthly
     installments of $520 including  interest at an annual rate of approximately
     7.0% through October 24, 2008 and is secured by a vehicle.                                     26,902
                                                                                             -------------
                                                                                                 2,121,500
                  Less current portion                                                             159,198
                                                                                             -------------

                                                                                               $ 1,962,302
                                                                                             =============
</TABLE>

       The Company  incurred  interest cost as follows during years ended August
31, 2003 and 2002.
<TABLE>
<CAPTION>

                                                                                         2003            2002
                                                                                        ------          ------
<S>                                                                                   <C>              <C>
Interest incurred during years ended August 31
    Notes payable to the President and Chief Executive Officer and his family         $   108,200      $  82,349
    Note payable to Eadon Solutions, LLC                                                   39,856         23,134
    Note payable to bank                                                                    1,704              0
                                                                                      -----------      ---------
                                                                                      $   149,760      $ 105,483
                                                                                      ===========      =========


</TABLE>






                                      F-12
<PAGE>

NOTE 5 - SHAREHOLDERS' EQUITY

REVERSE STOCK SPLIT

         On June 10, 2002, the Company's  shareholders  approved an amendment to
the Company's Articles of Incorporation to effect a 3:1 reverse stock split. The
Company  paid  cash  in lieu of any  fractional  shares.  The  total  number  of
authorized  shares of common  stock and the par value of the common stock remain
the same and were unaffected by the reverse split.

         All shares and per share  amounts have been  retroactively  restated in
connection with the reverse stock split.

CONVERSION OF DEBT TO COMMON STOCK

       The Company issued  2,222,222  shares of its common stock (6,666,666 on a
pre-split  basis) on January 21, 2002 to the mother of the  President  and Chief
Executive  Officer  of the  Company  in  exchange  for  convertible  debt in the
principal  amount of $500,000 at the conversion  rate of $0.225 per share ($.075
on a pre-split basis).

NOTE 6 - STOCK OPTION PLAN

         All  option  shares  and per  share  amounts  have  been  retroactively
restated in connection with the 3:1 reverse stock split effected during the 2002
year.

         During June 2002,  the Company  adopted the 2002 Stock Option Plan that
authorized the Board of Directors to grant options of up to 1,500,000  shares of
the Company's  common stock. On January 30, 2003, the 2002 Stock Option Plan was
amended to increase  the  aggregate  number of shares  that may be granted  from
1,500,000 to 2,500,000.

         The Company's  previous  Stock Option Plan was adopted  during 1991 and
was amended on January 27,  2000,  January  21, 1999 and January 15,  1998.  The
previous  Stock  Option Plan  terminated  on June 27, 2000 and no options of the
Company's common stock can be granted thereafter,  but this termination does not
affect the options previously granted to the plan participants. As of August 31,
2003,   1,456,667  shares  have  been  awarded  to  plan  participants  and  are
outstanding  under the 2002  Stock  Option  Plan and  152,774  shares  have been
awarded and are outstanding to plan participants under the previous Stock Option
Plan. These options vest over a three year period.

         The Company  also has an informal  stock  option plan under which stock
options can be granted to certain  non-employee  officers and  directors.  Under
this plan 60,000 options were granted  during the 2003 year.  These options were
fully vested on the date of the grant and 25,000 options were exercised.  During
the 2003 year, 10,000 options expired and were forfeited. As of August 31, 2003,
options to purchase 95,000 shares have been granted and are outstanding.







                                      F-13

<PAGE>

  All options under the plans were granted at not less than fair market value at
dates of grant. Stock option  transactions  during the two years ended August 31
were as follows:
<TABLE>
<CAPTION>

                                                                                        2003           2002
                                                                                  -------------    -------------
<S>                                                                                   <C>                <C>
Options outstanding at September 1                                                    1,679,439          217,772
Options granted                                                                          60,000        1,496,667
Options exercised                                                                       (25,000)               -
Options forfeited                                                                       (10,000)         (35,000)
                                                                                  --------------   --------------
Options outstanding at August 31                                                      1,704,439        1,679,439
                                                                                  =============    =============
Options exercisable at August 31                                                        706,661          182,772
                                                                                  =============    =============
Outstanding options issued under Stock Option Plan at August 31                       1,609,439        1,609,439
                                                                                  =============        =========
Outstanding options issued under informal Stock Option Plan                              95,000           70,000
                                                                                  =============    =============

Options available for grant under Stock Option Plan at August 31                         43,333           43,333
                                                                                  =============    =============
Option price ranges per share:
   Granted                                                                          $.10 - $.26      $.07 - .077
   Exercised                                                                            0.26              -
   Forfeited .                                                                          0.57       .0375 - 1.125
Weighted average option price per share:
   Granted                                                                              0.149              0.071
   Exercised                                                                            0.26                  -
   Forfeited                                                                            0.57               0.518
   Outstanding at August 31                                                             0.101              0.102
</TABLE>

         The  options  at  August  31,  2003 had a  weighted  average  remaining
contractual  life  of  approximately  7.0  years.  There  were  706,660  options
currently  exercisable  with option  prices  ranging from $0.07 to $1.125 with a
weighted average exercise price of $0.143.
























                                      F-14

<PAGE>

NOTE 7 - INCOME TAXES

             During  fiscal years 2003 and 2002,  net  deferred tax benefits
were fully offset by a valuation  allowance  relating to  temporary  differences
since the Company is not assured  that the  resulting  additional  deferred  tax
assets will be realized.  Significant  components of the Company's  deferred tax
assets and liabilities are as follows:

    ASSETS
       Net operating loss carryforward              $     4,710,000
       Other                                                 60,000
                                                    ---------------
                                                          4,770,000
       Valuation allowance                                4,765,000
                                                    ---------------
       Deferred tax assets                                    5,000
    LIABILITIES
       Depreciation                                           5,000
                                                    ---------------
       Net deferred taxes                           $             -
                                                    ===============

             At  August  31,   2003,   the  Company  has  net   operating   loss
carryforwards  available for income tax purposes of  approximately  $12,731,000.
Such carryforwards expire in 2006 through 2022. The Company's ability to use its
existing net  operating  loss  carryforward  may be  jeopardized  or lost if the
Company undergoes an "ownership change" as defined by the Internal Revenue Code.

             The  valuation  allowance   increased  $4,000,   during  2003  due
to the  uncertainty  of the  Company's  ability to generate  taxable  income and
realize the benefits of deferred tax assets.  The  recognition of a net deferred
tax  asset  is  dependent  upon a "more  likely  than  not"  expectation  of the
realization of the deferred tax asset,  based upon the analysis of the available
evidence.  A valuation allowance is required to sufficiently reduce the deferred
tax  asset  to the  amount  that  is  expected  to be  realized  through  future
realization  of profits on a "more  likely  than not"  basis.  The  analysis  of
available  evidence is performed on an ongoing basis  utilizing the "more likely
than not" criteria to determine the amount, if any, of the deferred tax asset to
be realized.  Adjustments to the valuation allowance are made accordingly. There
can be no assurance that additional  valuation allowances may not be recorded in
the future periods.















                                      F-15


<PAGE>

NOTE 8 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES


           Selling,  general and administrative  expenses consisted of the
following for the years ended August 31, 2003 and 2002:

                                                       2003               2002
                                                    ------------     -----------
         Salaries, wages and benefits                $  464,444       $  277,382
         Legal and professional                          55,785           38,745
         Rent                                            50,900           36,775
         Telephone and utilities                         35,485           25,451
         Office expense                                  33,825           23,168
         Travel expense                                   9,725           17,475
         Insurance                                       26,353            7,042
         Shareholder relations                           13,263           27,737
         Depreciation                                    22,735            7,409
         Amortization - intangible assets               128,879           64,292
         Other                                           32,047           13,119
                                                    -----------      -----------

                                                    $   873,441      $   538,595
                                                    ===========      ===========

NOTE 9 - MAJOR CUSTOMER INFORMATION

           Sales to each of three major customers  exceeded 10% of net sales
during the fiscal years ended August 31, 2003 and 2002. Sales to these customers
accounted  for over 50% of net sales  during the years ended August 31, 2003 and
2002.


NOTE 10 - AFFILIATED PARTY TRANSACTIONS

           See Note 4 concerning notes payable with affiliated  parties and Note
5 concerning conversion of debt to common stock.

           The  Company   leases  its  principal   executive   offices  under  a
month-to-month  lease  arrangement  from a  corporation  that  is  owned  by the
President,  Chief  Executive  Officer  and a director of the Company and his two
adult siblings,  one of whom is also a director of the Company.  Under the lease
arrangement,  the monthly  rent during the fiscal year ended August 31, 2003 and
the last five  months of the fiscal  year ended  August 31,  2002 was $2,550 per
month and $1,500  per month  during the first  seven  months of the fiscal  year
ended  August 31,  2002.  Accounts  receivable  at August 31, 2003  included the
reimbursement  of  expenses in the amount of $1,003  that were  incurred  during
August 2003 by a company  that is owned by the  President  of the  Company,  his
mother and his two adult siblings, one of whom is also a director.











                                      F-16






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<TABLE>
<CAPTION>

                                INDEX OF EXHIBITS

<S>           <C>
10.12         Promissory Note in the principal amount of $250,000 from the Company to Minor H. Mickel dated August 14, 2001.

10.14.1       Promissory Note in the principal amount of $20,000 from the Company to Buck A. Mickel dated February 25, 2002.

10.14.2       Promissory Note in the principal amount of $20,000 from the Company to Charles C. Mickel dated February 25, 2002.

10.14.3       Promissory Note in the principal amount of $20,000 from the Company to Minor Mickel Shaw dated February 25, 2002.

21.           Subsidiaries of the Registrant.

23.           Consent of Independent Certified Public Accountants.

31.1          Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
              2003.

31.2          Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
              2003.

32.1          Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
              2003.

32.2          Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
              2003.

</TABLE>